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Why Adtalem (ATGE) Stock is Rallying Despite Industry's Fall?

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Adtalem Global Education Inc.’s (ATGE - Free Report) shares have rallied 15.5% in the past year while the Zacks Schools industry has plummeted 38.8%. Adtalem’s keen focus on healthcare institutions to meet the growing demand for nurses and other healthcare professionals is adding to the bliss. Also, prudent investment initiatives, introduction of short-term programs and cost-saving initiatives are commendable.

Impressively, the company has also broadly outperformed other industry players like American Public Education, Inc. (APEI - Free Report) , New Oriental Education & Technology Group Inc. (EDU - Free Report) , and Strategic Education, Inc. (STRA - Free Report) in the said period.

This outperformance can be attributed to Adtalem’s impressive surprise history. Notably, its earnings surpassed analysts’ expectation in 22 of the last 28 quarters.

Zacks Investment ResearchImage Source: Zacks Investment Research

Despite these industry-leading positives, the company is incurring additional costs to protect the health of employees and customers owing to the COVID-19 pandemic. Estimates for fourth-quarter fiscal 2021 have moved 1.4% downward over the past 60 days. That said, the above-mentioned positives and focus on virtual technology capabilities will offset this negative estimates revision.

Let’s take a look at the factors supporting growth of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Healthcare Industry Presents a Solid Opportunity for Adtalem

Adtalem’s health care and international institutions have recorded significant improvement over the past few years. In particular, the Chamberlain university remains well positioned to gain from the growing demand for nurses and increasing roles played by them in the healthcare industry.

In third-quarter fiscal 2021, health care institution Chamberlain’s new and total student enrollment improved 6.8% and 5.8% in the March session, and 8.1% and 10.2% in the December session, respectively, from a year ago. This university remains well positioned to gain from the growing demand for nurses and other healthcare professionals, and the increasing roles they play in the healthcare industry.

Moreover, it has inked a deal with Laureate Education, Inc. to acquire the latter’s leading online healthcare education unit — Walden University. Encouragingly, the combined organization will become the top provider of MDs, PhDs and nursing degrees to African Americans in the world. Also, it will attain the country’s leading position for total undergraduate and graduate nursing enrollment.

Cost-Saving Initiatives

Adtalem has undertaken cost-saving initiatives like workforce reduction and curbing discretionary spending. The company is following a strict cost-control routine, with special emphasis on controlling and escalating costs at some of the institutions. Also, tie-ups and collaboration with different organizations are allowing Adtalem to reduce exposure to Title IV funding.

Investment in Other Businesses

Adtalem laid out various investment plans including partnerships with corporations, hospitals, government agencies and professional organizations. The collaborative investments will be made with the intend to design education programs aimed at teaching new skills to employees; introduction of short-term programs to meet students’ preference and employers’ needs; as well as expansion in Asia, U.K., Latin America and the greater European market.

Focus on OnCourse Learning

In the financial service segment, OnCourse learning has been a major growth driver. In March, demand for OnCourse Learning increased significantly in the mortgage and banking sectors. To overcome the pandemic-led disruptions in the business, the company has increased focus on virtual technology capabilities and adjusted offerings for students, customers as well as employer partners in order to mitigate the impact of the crisis.

Increased Costs May Put Pressure on Near-Term Results

Despite undertaking various initiatives and actions, Adtalem’s bottom line has been under pressure due to additional costs associated with COVID-related health protection of employees as well as customers. Although management has initiated several changes in operations and administrative functions to mitigate the financial impact of the pandemic, variable expenses are likely to surge on account of the additional costs related to providing a safe environment.

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